Monday, 9 April 2012

Finding Beat Up and Undervalued TSX Stocks - #1

As the S&P reaches levels it hasn't seen in four years and a stock like AAPL is worth over half a trillion dollars, one can't help but notice that the market appears to be overheated. The truth is that it is not. One of the clearest signs of an overbought market ready for a pullback or outright fall is when every single piece of garbage that trades on the stock market is overbought. Right now there are plenty of bargains to be had. This is the right time to get into these bargains as a long bull run in the market, particularly on the large caps in the US, is a prelude to the underperforming small caps to catch up.

With this in mind I have decided to start a series of stock picks with the same themes - poor recent share price performance and fundamentals that suggest they should be priced much higher. Right now there is no stock more beat up on the TSX than Yellow Media Inc. In 14 months the stock has managed to go from $6 to 7.5 cents thanks to the supposed threat of common shareholders being wiped out as the company's debts loom. Things is, the consensus is that Yellow Media will not get into liquidity trouble until their 2014 obligations come due. Referring to Page 12 of the company's Q4 2011 Supplemental Disclosure, we see that the consensus analyst estimate is $0.51 in EPS for 2012 and $0.48 in EPS for 2013. The current P/E is 0.14.

Never have I seen in my life a company so thrown away by the market where everyone assumes that bankruptcy is a foregone conclusion when the first sign of possible default is over 20 months away. Eastman Kodak is in bankruptcy court right now and is losing about $100M a month in an industry that is in greater peril than YLO's thanks to the advent of Smartphones and emergence of big box retailers. Yet their market cap is STILL $79M. YLO's market cap is half of that and they haven't defaulted, and have a consensus net income of over $260M in 2012! It simply boggles my mind how YLO is given absolutely NO benefit of the doubt. Not one penny of liquidity or trading premium on the stock. With the market the way it is, our next big leg up on the TSX could see YLO do one of those TRE-like moves where the stock gains 200-400% in the matter of a few trading days as it is in a highly oversold condition.

Stay tuned as myself and several associates of mine will be analyzing YLO's business from several different angles to triangulate on the company's potential value and posting our conclusions here.



  2. :) Nice post! Can't wait to hear what you find!